exv10w4w1






Exhibit 10.4.1




FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT 




     First Amendment (this “First Amendment”) dated as of July 30, 2008 between DIGITAL
RECORDERS, INC., a North Carolina corporation (“Digital”), TWINVISION OF NORTH AMERICA, INC., a
North Carolina corporation (“TwinVision” and, together with Digital, the
“Borrowers”), DRI CORPORATION, a North Carolina corporation (“Guarantor” and,
together with the Borrowers, the “Loan Parties”) and BHC INTERIM FUNDING II, L.P., a
Delaware limited partnership (“Lender”), to that certain Loan and Security Agreement dated
as of June 30, 2008 (as amended, modified, supplemented or restated from time to time the “Loan
Agreement”) between the Loan Parties and Lender. Terms which are capitalized in this First
Amendment and not otherwise defined shall have the meanings ascribed to such terms in the Loan
Agreement.



     WHEREAS, Lender has agreed to forego the requirement of a pledge of sixty-five percent (65%)
of the Capital Stock of Mobitec Australia; and



     WHEREAS, the Loan Parties desire to correct certain Schedules to the Loan Agreement.



     NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Loan
Parties and Lender hereby agree as follows:



     Section One. Amendment to Loan Agreement.



     (a) Section 1.1. Definitions. Section 1.1 is amended by deleting the
following definitions and substituting the following in lieu thereof:




          (i) “Mobitec Brazil” means Mobitec Industria e Comercio de Produtos Eletronicos
Ltda., a Brazilian limited liability company.




          (ii) “Pledge Agreement” means a pledge agreement, in form and substance
satisfactory to Lender, executed by a Pledgor, pursuant to which such Pledgor grants a Lien
on the Capital Stock identified therein to Lender, as the same may be amended, restated,
supplemented or otherwise modified or extended or renewed from time to time.




          (iii) “Pledged Collateral” shall have the meaning given such term in a Pledge
Agreement, and shall in any event include any and all Capital Stock issued by each Borrower
and RTI, sixty-five percent (65%) of the Capital Stock issued by each Foreign Subsidiary
(other than Mobitec Australia and, for so long as the Loan Parties and their respective
Subsidiaries own less than sixty-five percent (65%) of the Capital Stock issued by Mobitec
Brazil, Mobitec Brazil) and one hundred percent (100%) of the Capital Stock issued by
Mobitec Brazil to the Loan Parties and their respective Subsidiaries to the extent that the
Loan Parties and such Subsidiaries own sixty-five percent (65%) or less of the issued and
outstanding Capital Stock of Mobitec Brazil.



 









 





     (b) Section 6.19. Negative Pledge. Section 6.19 is hereby deleted in its
entirety and substituting the following in lieu thereof:




          No Loan Party shall, nor shall it permit any Subsidiary to (i) create, incur, assume or
suffer to exist any Lien, or any other negative pledge, on or with respect to any Capital
Stock of a Foreign Subsidiary or on or with respect to the Capital Stock of Cast Master
Mobitec that it does not own or (ii) take any action that would permit, or fail to take any
action that would allow, the owner of the Capital Stock of Mobitec Brazil that is not owned
by a Loan Party or a Subsidiary thereof to create, incur, assume or suffer to exist any
Lien, or any other negative pledge, on or with respect to such Capital Stock.



     (c) Schedules 4.1(B) and 4.21. Schedules 4.1(B) and 4.21 to the Loan
Agreement are restated in their entirety as set forth on Exhibit A hereto.



     Section Two.
Representations and Warranties. To induce Lender to enter into this
First Amendment, the Loan Parties hereby warrant and represent to Lender as follows:



     (a) all of the representations and warranties contained in the Loan Agreement and each other
Loan Document to which the Loan Parties are a party continue to be true and correct in all material
respects as of the date hereof, as if repeated as of the date hereof, except for such
representations and warranties which, by their terms, are expressly made only as of a previous
date;



     (b) the execution, delivery and performance of this First Amendment by each of the Loan
Parties is within their corporate powers, has been duly authorized by all necessary corporate
action on their part, and each of the Loan Parties has received all necessary consents and
approvals (if any are required) for the execution and delivery of this First Amendment;



     (c) upon its execution, this First Amendment shall constitute the legal, valid and binding
obligation of the Loan Parties, enforceable against the Loan Parties in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy, insolvency or similar laws
affecting creditors’ rights generally and (ii) general principles of equity;



     (d) except as set forth herein or as the Loan Parties or their representatives shall have
notified Lender of in writing, none of the Loan Parties are in default under any indenture,
mortgage, deed of trust, or other material agreement or material instrument to which they are a
party or by which they may be bound which could have a Material Adverse Effect. Neither the
execution and delivery of this First Amendment, nor the consummation of the transactions herein
contemplated, nor compliance with the provisions hereof will (i) violate any law or regulation
applicable to any of the Loan Parties, (ii) cause a violation by any of the Loan Parties of any
order or decree of any court or government instrumentality applicable to them, (iii) conflict with,
or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust,
or other material agreement or material instrument to which any of the Loan Parties is a party or
by which they may be bound, or (iv) result in the creation or imposition of any lien, charge, or
encumbrance upon any property of any of the Loan Parties, except in favor of Lender, to secure the
Obligations.



     (e) no Default or Event of Default has occurred and is continuing; and



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     (f) since the date of the Loan Parties’ most recent financial statements delivered to Lender,
no change or event has occurred which has had, or is reasonably likely to have, a Material Adverse
Effect.



     Section Three.
Conditions Precedent. This First Amendment shall become effective
upon the satisfaction of the following conditions precedent:



     (a) Lender shall have received this First Amendment, duly executed by the Loan Parties;



     (b) no Default or Event of Default shall have occurred be continuing, and no event or
development which has had or is reasonably likely to have a Material Adverse Effect shall have
occurred, in each case, since the date of the Loan Parties’ most recent financial statements
delivered to Lender.



     Section Four.
Release. The Loan Parties hereby acknowledge and agree that: (a)
neither they nor any of their Affiliates have any claim or cause of action against Lender (or any
of Lender’s respective Affiliates, officers, directors, employees, attorneys, consultants or
agents) and (b) Lender has heretofore properly performed and satisfied in a timely manner all of
its obligations to the Loan Parties under the Loan Agreement and the other Loan Documents.
Notwithstanding the foregoing, Lender wishes (and the Loan Parties agree) to eliminate any
possibility that any past conditions, acts, omissions, events or circumstances would impair or
otherwise adversely affect any of Lender’s rights, interests, security and/or remedies under the
Loan Agreement and the other Loan Documents. Accordingly, for and in consideration of the
agreements contained in this Amendment and other good and valuable consideration, the Loan Parties
(for themselves and their Affiliates and the successors, assigns, heirs and representatives of each
of the foregoing) (each a “Releasor” and collectively, the “Releasors”) does hereby
fully, finally, unconditionally and irrevocably release and forever discharge Lender and each of
its Affiliates, officers, directors, employees, attorneys, consultants and agents (each a
“Released Party” and collectively, the “Released Parties”) from any and all debts,
claims, obligations, damages, costs, attorneys’ fees, suits, demands, liabilities, actions,
proceedings and causes of action, in each case, whether known or unknown, contingent of fixed,
direct or indirect, and of whatever nature or description, and whether in law or in equity, under
contract, tort, statute or otherwise, which any Releasor has heretofore had or now or hereafter
can, shall or may have against any Released Party by reason of any act, omission or thing
whatsoever done or omitted to be done on or prior to the date hereof arising out of, connected with
or related in any way to this First Amendment, the Loan Agreement or any other Loan Document, or
any act, event or transaction related or attendant thereto, or Lender’s agreements contained
therein, or the possession, use, operation or control of any of the assets of agreements contained
therein, or the possession, use, operation or control of any of the assets of the Loan Parties, or
the making of any advance, or the management of such advance or the Collateral.



     Section Five.
General Provisions.



     (a) Except as herein expressly amended, each of the Loan Agreement and all of the other Loan
Documents are ratified and confirmed in all respects and shall remain in full force and effect in
accordance with their respective terms.



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     (b) All references to the Loan Agreement in the Loan Agreement and each other Loan Document
shall mean such Loan Agreement as amended as of the effective date hereof, and as amended hereby
and as hereafter amended, supplemented and modified from time to time.



     (c) This First Amendment embodies the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements, commitments, arrangements,
negotiations or understandings, whether written or oral, of the parties with respect thereto.



     (d) This First Amendment, and matters relating hereto and arising herefrom, shall be governed
by and construed in accordance with the internal laws of the State of New York, without regard to
the conflict of laws principles thereof.



     (e) This First Amendment is a Loan Document.



     (f) Nothing contained in this First Amendment shall operate as a waiver of any right, power,
or remedy to which Lender may be entitled, nor constitute a waiver of any provision of the Loan
Agreement or any of the other Loan Documents, or any other documents, instruments or agreements
executed and/or delivered under or in connection therewith.



     (g) This First Amendment may be executed by the parties hereto in one or more counterparts,
each of which when so executed shall be deemed an original; and such counterparts taken together
shall constitute one and the same agreement. Any signatures delivered by a party by facsimile or
electronic transmission shall be deemed an original signature hereto.



(This space intentionally left blank – signature page follows.)





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     IN WITNESS WHEREOF, Loan Parties and Lender have signed below to indicate their agreement with
the foregoing and their intent to be bound thereby.



	 	 	 	 	 	 	 
	LENDER:	 	BHC INTERIM FUNDING II, L.P.,	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	BHC Interim Funding Management III, L.P.,	 	 
	 

	 	 	 	its General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	BHC Investors III, L.L.C.,	 	 
	 

	 	 	 	its Managing Member	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	GHH Holdings III, L.L.C.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Gerald H. Houghton
 

Name: Gerald H. Houghton
	 	 
	 

	 	 	 	Title: Managing Member	 	 
	 
	 	 	 	 	 	 
	BORROWERS:	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Stephen P. Slay

	 
	 

	 	 	 	 

Name: Stephen P. Slay
	 	 
	 

	 	 	 	Title: VP & Secretary	 	 
	 
	 	 	 	 	 	 
	 	 	TWINVISION OF NORTH AMERICA, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Stephen P. Slay

	 
	 

	 	 	 	 

Name: Stephen P. Slay
	 	 
	 

	 	 	 	Title: VP & Secretary	 	 
	 
	 	 	 	 	 	 
	GUARANTOR:	 	DRI CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Stephen P. Slay

	 
	 

	 	 	 	 

Name: Stephen P. Slay
	 	 
	 

	 	 	 	Title: CFO & Secretary	 	 






Signature
Page to First Amendment


 









 








EXHIBIT A




SCHEDULE 4.1(B)

CAPITALIZATION




	 	 	 	 	 
	Parent: Common Stock authorized –
	 	 	25,000,000	 
	Preferred Stock authorized –
	 	 	4,967,700	 
	Series AAA authorized –
	 	 	20,000	 
	Series D authorized –
	 	 	30,000	 
	Series E authorized –
	 	 	500	 
	Series F authorized –
	 	 	400	 
	Series G authorized –
	 	 	600	 
	Series H authorized –
	 	 	600	 
	Series I authorized –
	 	 	200	 
	Series J authorized –
	 	 	250	 






     See outstanding capitalization table below


TwinVision of North America, Inc. – common stock authorized – 100,000 – 100% owned by Parent



Digital Recorders, Inc. – common stock authorized – 100,000 – 100% owned by Parent



RTI – common stock authorized 100,000 – 100% owned by Parent




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Shares Issued and	 	DRI	 	 
	 	 	Shares authorized	 	Outstanding	 	Ownership %	 	DRI Shares
	DRI Europa
	 	 	 	 (A)	 	 	100,000	 	 	 	100	%	 	 	100,000	 
	Mobitec AB – sub of DRI Europa AB and DRI
	 	 	 	 (B)	 	 	100,000	 	 	 	100	%	 	 	100,000	*
	Mobitec GMBH – sub of DRI Europa AB
	 	 	30,000	 	 	 	30,000	 	 	 	100	%	 	 	30,000	 
	Mobitec Australia – subsidiary of Mobitec AB
	 	 	1	 	 	 	1	 	 	 	100	%	 	 	1	 
	Mobitec Brazil – subsidiary of Mobitec AB
	 	 	360,000	 	 	 	360,000	 	 	 	50	%	 	 	180,000	 
	Cast Master
Mobitec - Subsidiary of Mobitec AB
	 	 	250,000	 	 	 	250,000	 	 	 	51	%	 	 	127,500	 








 




			
	(A):	 	The Articles of Association authorize stock in a monetary value with
a minimum of 5,000,000 SEK and a maximum of 20,000,000 SEK.
	 
	(B):	 	The Articles of Association authorize stock in a monetary value with
a minimum of 100,000 SEK and a maximum of 400,000 SEK.
* DRI Europa owns 90,802 shares of Mobitec AB and Parent owns
9,198 shares of Mobitec AB





 









 





 

Parent Common Stock, Warrants, Convertibles and Preferred Stock

Potential “All-In” Calculation Summary — As of May 31, 2008




	 	 	 	 	 	 	 
	Instrument	 	Quantity	 	Remarks
	Common:
	 	 	 	 	 	 
	Common – Beginning of Year

	 	 	11,187,993	 	 	 
	Common stock issued to Directors and key
executive managers in lieu of compensation
- October-December 2007

	 	 	6,855	 	 	 
	Series AAA Conversion (6 shares at $5.50)

	 	 	5,454	 	 	 
	Series E Conversion (5 shares at $3.00)

	 	 	8,333	 	 	 
	Employee stock option conversion

	 	 	1,980	 	 	 
	Common stock issued to Directors and key
executive managers in lieu of compensation
- January-March 2008

	 	 	10,815	 	 	 
	Total Common

	 	 	11,221,430	 	 	 
	 
	 	 	 	 	 	 
	Convertibles:
	 	 	 	 	 	 
	Higgins ‘02 Conv Debt ($0.25M)

	 	 	227,273	 	 	Converts at $1.10; converted at Closing
	Series E Conv Preferred

	 	 	133,333	 	 	Conv. at $3.00; Face $5K; 80 Shares; 7% Div.
	Series AAA Preferred

	 	 	150,909	 	 	$5.50 Conversion Price (166 Shares Remaining Outstanding)
	Series G Conv Preferred

	 	 	945,701	 	 	$2.21 Conversion Price (418 Shares Remaining Outstanding)
	Series H Conv Preferred

	 	 	144,230	 	 	$2.08 Conversion Price (60 Shares Remaining Outstanding)
	Series J Conv Preferred

	 	 	199,115	 	 	$2.26 Conversion Price (90 Shares Remaining Outstanding)
	Total Convertibles:

	 	 	1,800,561	 	 	 
	Potential With Conversion

	 	 	13,021,991	 	 	Outstanding & Potentially Outstanding w/ Conversion
	 
	 	 	 	 	 	 
	Warrants and Options:
	 	 	 	 	 	 
	Warrants

	 	 	1,036,998	 	 	Ave Exercise ±$4.65 (See below)
	Stock Option Plan (Old)

	 	 	322,600	 	 	Ave Exercise Price approx $2.69; Plan now expired
	Stock Option Plan (New)

	 	 	484,870	 	 	Out of 675,000 Authorized; Wtd Ave Strike Price @ $2.37
	Total Warrants & Options

	 	 	1,844,468	 	 	 
	Potential “All-In”

	 	 	14,866,459	 	 	 
	Authorized Common Shares

	 	 	25,000,000	 	 	 






 









 






Warrants & Weighted-Average Exercise Price — as of May 31, 2008




	 	 	 	 	 	 	 
	Holder	 	Quantity	 	Strike @
	Roth Capital I

	 	 	62,500	 	 	@ $10.25 = $640,625 (Expires 09) (6 months before
trading possible!; + placement fee)
	Roth Placements

	 	 	125,000	 	 	@ $8.80 = $1,100,000 (Expires 09) (8 Entities – rights
under private placement; S-3)
	Roth Capital II

	 	 	120,773	 	 	@ $5.28 = $637,681 (Expires 09) (6 months before trading
possible!; + placement fee)
	Riverview Group LLC

	 	 	241,546	 	 	@ $6.00 = $1,449,276 (Expires 09) ( 6 months before
trading possible)
	K. Laday

	 	 	2,500	 	 	@ $3.19 = $7,975 (Expire 10) (SBP service)
	Dolphin Offshore Partners, L.P.

	 	 	240,000	 	 	@ $2.21 = $530,400 (Expire 10) (related to Series G)
	John D. Higgins

	 	 	55,000	 	 	@ $2.02 = $111,100 (Expire 10) (related to Series H)
	Transit Vehicle Technology Investments, Inc.

	 	 	93,750	 	 	@ $1.60 = $150,000 (Expire 11) (related to Series I)
	Laurus Master Fund, Ltd.

	 	 	80,000	 	 	@ $2.00 = $160,000 (Expire 11) (related to Term note)
	Fairview Capital Ventures, LLC.

	 	 	15,929	 	 	@ $2.26 = $35,999 (Expire 12) (related to Series J)
	   

	 	 	 	 	 	 
	Total Warrants

	 	 	1,036,998	 	 	Average Exercise Price Approximately $4.65







Under the 2003 Stock Option Plan 984,000 options can be issued of which 600,000 will be issued
before 6/30/08 with the balance to be issued over the next 2 years.
365,000 new warrants are to be issued to BHC Interim Funding III, L.P.



 









 





SCHEDULE 4.21

SUBSIDIARIES




Digital Recorders, Inc. — a North Carolina corporation (Subsidiary of Parent)

TwinVision of North America, Inc. – a North Carolina corporation (Subsidiary of Parent)

RTI. – a Texas corporation (Subsidiary of Parent — shell)

DRI Europa, foreign subsidiary of Parent

DRI Europa has the following subsidiaries:





Mobitec AB – DRI Europa owns 90,802 of the 100,000 outstanding shares; Parent owns 9,198
shares




Mobitec Australia – is wholly-owned subsidiary of Mobitec AB
Mobitec GMBH



Mobitec Brazil (50% ownership) by Mobitec AB

Cast Master Mobitec (51% ownership by Mobitec AB and Mobitec GMBH)